Deduction For Travel Allowance Provided By A Contractor

Q&A Tax

Question :

Mr. C contracted his services for ABC Pty Ltd. He invoices the company his contracted hourly rates and
invoices a standard amount for ‘travel allowance’.

He travels interstate a lot, had about 85 nights away in FY2018. While he is not an employee of the
company, he wishes to claim a deduction equal to the allowance paid. Based on TD 2017/19, ATO has
made some estimates on what a reasonable rate is for travel & meals by state which provides an
exception for documentation and substantiation. In FY2018, his estimate of actual costs is below ATO’s
reasonable rate.

Therefore, Can Mr. C rely on the substantiation exception outlined in TD 2017/19 to claim his travel
allowance as deduction?

 

Answer :

The ATO reasonable rates for travel expenses are only applicable if the taxpayer is an employee. Refer
to sections 900-50 ITAA 1997 and TD 2017/19.

In TD 2017/19 paragraph 17, ATO sets out the reasonable amounts for domestic travel expenses for
the 2017-18 income year which are shown in Tables 1 to 5. For example, if an employee has annual salary
less than $119,650 and travels to Melbourne, the daily travel expense reasonable amount is $301.70.
This means the employee could claim travel expenses deduction up to $301.70 per day exempted from
substantiation requirement while travelling to Melbourne.

However, as Mr. C is a genuine independent contractor, the ATO reasonable rates do not really apply to
him, even if he has incorporated a travel allowance component into his invoices to ABC Pty Ltd.

Mr. C might still be able to claim a deduction for their travel expenses, but they would need to comply
with the normal substantiation rules (ie, have invoices / receipts for all the expenses).

See the ATO’s guidance on the normal substantiation rules in TR 2004/6.

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